IDEAS home Printed from https://ideas.repec.org/p/cam/camdae/1562.html
   My bibliography  Save this paper

Networks and Misallocation: Insurance, Migration, and the Rural-Urban Wage Gap

Author

Listed:
  • Kaivan Munshi
  • Mark Rosenzweig

Abstract

We provide an explanation for the large spatial wage disparities and low male migration in India based on the trade-off between consumption-smoothing, provided bycaste-based rural insurance networks, and the income-gains from migration. Our theory generates two key empirically-verified predictions: (i) males in relatively wealthy households within a caste who benefit less from the redistributive (surplus-maximizing)network will be more likely to migrate, and (ii) males in households facing greater rural income-risk (who benefit more from the insurance network) migrate less. Structural estimates show that small improvements in formal insurance decrease the spatial misallocation of labor by substantially increasing migration.

Suggested Citation

  • Kaivan Munshi & Mark Rosenzweig, 2015. "Networks and Misallocation: Insurance, Migration, and the Rural-Urban Wage Gap," Cambridge Working Papers in Economics 1562, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:1562
    Note: km619
    as

    Download full text from publisher

    File URL: http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe1562.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Caselli, Francesco, 2005. "Accounting for Cross-Country Income Differences," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 9, pages 679-741, Elsevier.
    2. Francisco J. Buera & Yongseok Shin, 2013. "Financial Frictions and the Persistence of History: A Quantitative Exploration," Journal of Political Economy, University of Chicago Press, vol. 121(2), pages 221-272.
    3. Jang-Sup Shin, 2011. "Finance and Economic Development in China: An Introduction," Global Economic Review, Taylor & Francis Journals, vol. 40(2), pages 141-143.
    4. Duncan Thomas & Elizabeth Frankenberg & James P. Smith, 2001. "Lost but Not Forgotten: Attrition and Follow-up in the Indonesia Family Life Survey," Journal of Human Resources, University of Wisconsin Press, vol. 36(3), pages 556-592.
    5. Ethan Ligon & Jonathan P. Thomas & Tim Worrall, 2002. "Informal Insurance Arrangements with Limited Commitment: Theory and Evidence from Village Economies," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(1), pages 209-244.
    6. Rosenzweig, Mark R & Wolpin, Kenneth I, 1993. "Credit Market Constraints, Consumption Smoothing, and the Accumulation of Durable Production Assets in Low-Income Countries: Investment in Bullocks in India," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 223-244, April.
    7. Ran Abramitzky, 2008. "The Limits of Equality: Insights from the Israeli Kibbutz," Discussion Papers 07-048, Stanford Institute for Economic Policy Research.
    8. Restuccia, Diego & Yang, Dennis Tao & Zhu, Xiaodong, 2008. "Agriculture and aggregate productivity: A quantitative cross-country analysis," Journal of Monetary Economics, Elsevier, vol. 55(2), pages 234-250, March.
    9. Foster, Andrew D & Rosenzweig, Mark R, 1995. "Learning by Doing and Learning from Others: Human Capital and Technical Change in Agriculture," Journal of Political Economy, University of Chicago Press, vol. 103(6), pages 1176-1209, December.
    10. Townsend, Robert M, 1994. "Risk and Insurance in Village India," Econometrica, Econometric Society, vol. 62(3), pages 539-591, May.
    11. Ethan Ligon, 1998. "Risk Sharing and Information in Village Economies," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 65(4), pages 847-864.
    12. Christopher Udry, 1994. "Risk and Insurance in a Rural Credit Market: An Empirical Investigation in Northern Nigeria," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(3), pages 495-526.
    13. repec:oup:qjecon:v:129:y:2014:i:2:p:939-993. is not listed on IDEAS
    14. Ricardo Lagos, 2006. "A Model of TFP," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(4), pages 983-1007.
    15. Caselli, Francesco, 2005. "Accounting for cross-country income differences," LSE Research Online Documents on Economics 5266, London School of Economics and Political Science, LSE Library.
    16. Chang-Tai Hsieh & Peter J. Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(4), pages 1403-1448.
    17. Gharad Bryan & Shyamal Chowdhury & Ahmed Mushfiq Mobarak, 2014. "Underinvestment in a Profitable Technology: The Case of Seasonal Migration in Bangladesh," Econometrica, Econometric Society, vol. 82(5), pages 1671-1748, September.
    18. Diego Restuccia & Richard Rogerson, 2008. "Policy Distortions and Aggregate Productivity with Heterogeneous Plants," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 707-720, October.
    19. Matthew O. Jackson & Tomas Rodriguez-Barraquer & Xu Tan, 2012. "Social Capital and Social Quilts: Network Patterns of Favor Exchange," American Economic Review, American Economic Association, vol. 102(5), pages 1857-1897, August.
    20. Caldwell, John C & Reddy, P H & Caldwell, Pat, 1986. "Periodic High Risk as a Cause of Fertility Decline in a Changing Rural Environment: Survival Strategies in the 1980-1983 South Indian Drought," Economic Development and Cultural Change, University of Chicago Press, vol. 34(4), pages 677-701, July.
    21. Rosenzweig, Mark R & Stark, Oded, 1989. "Consumption Smoothing, Migration, and Marriage: Evidence from Rural India," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 905-926, August.
    22. Daniel Chiquiar & Gordon H. Hanson, 2005. "International Migration, Self-Selection, and the Distribution of Wages: Evidence from Mexico and the United States," Journal of Political Economy, University of Chicago Press, vol. 113(2), pages 239-281, April.
    23. Mckenzie, David & Rapoport, Hillel, 2007. "Network effects and the dynamics of migration and inequality: Theory and evidence from Mexico," Journal of Development Economics, Elsevier, vol. 84(1), pages 1-24, September.
    24. Grimard, Franque, 1997. "Household consumption smoothing through ethnic ties: evidence from Cote d'Ivoire," Journal of Development Economics, Elsevier, vol. 53(2), pages 391-422, August.
    25. Francisco J. Buera & Joseph P. Kaboski & Yongseok Shin, 2011. "Finance and Development: A Tale of Two Sectors," American Economic Review, American Economic Association, vol. 101(5), pages 1964-2002, August.
    26. Munshi, Kaivan, 2004. "Social learning in a heterogeneous population: technology diffusion in the Indian Green Revolution," Journal of Development Economics, Elsevier, vol. 73(1), pages 185-213, February.
    27. Coate, Stephen & Ravallion, Martin, 1993. "Reciprocity without commitment : Characterization and performance of informal insurance arrangements," Journal of Development Economics, Elsevier, vol. 40(1), pages 1-24, February.
    28. Edward C. Prescott & Stephen L. Parente, 1999. "Monopoly Rights: A Barrier to Riches," American Economic Review, American Economic Association, vol. 89(5), pages 1216-1233, December.
    29. David McKenzie & Hillel Rapoport, 2010. "Self-Selection Patterns in Mexico-U.S. Migration: The Role of Migration Networks," The Review of Economics and Statistics, MIT Press, vol. 92(4), pages 811-821, November.
    30. Fafchamps, Marcel & Lund, Susan, 2003. "Risk-sharing networks in rural Philippines," Journal of Development Economics, Elsevier, vol. 71(2), pages 261-287, August.
    31. Harris, John R & Todaro, Michael P, 1970. "Migration, Unemployment & Development: A Two-Sector Analysis," American Economic Review, American Economic Association, vol. 60(1), pages 126-142, March.
    32. Abhijit V. Banerjee & Andrew F. Newman, 1998. "Information, the Dual Economy, and Development," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 65(4), pages 631-653.
    33. Kaivan Munshi, 2011. "Strength in Numbers: Networks as a Solution to Occupational Traps," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 78(3), pages 1069-1101.
    34. Andrew D. Foster & Mark R. Rosenzweig, 2002. "Household Division and Rural Economic Growth," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(4), pages 839-869.
    35. Ran Abramitzky, 2008. "The Limits of Equality: Insights from the Israeli Kibbutz," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(3), pages 1111-1159.
    36. Stark, Oded & Taylor, J Edward, 1991. "Migration Incentives, Migration Types: The Role of Relative Deprivation," Economic Journal, Royal Economic Society, vol. 101(408), pages 1163-1178, September.
    37. Garance Genicot & Debraj Ray, 2003. "Group Formation in Risk-Sharing Arrangements," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 70(1), pages 87-113.
    38. Lucas, Robert E B & Stark, Oded, 1985. "Motivations to Remit: Evidence from Botswana," Journal of Political Economy, University of Chicago Press, vol. 93(5), pages 901-918, October.
    39. Maurizio Mazzocco & Shiv Saini, 2012. "Testing Efficient Risk Sharing with Heterogeneous Risk Preferences," American Economic Review, American Economic Association, vol. 102(1), pages 428-468, February.
    40. Rosenzweig, Mark R, 1978. "Rural Wages, Labor Supply, and Land Reform: A Theoretical and Empirical Analysis," American Economic Review, American Economic Association, vol. 68(5), pages 847-861, December.
    41. Vollrath, Dietrich, 2009. "How important are dual economy effects for aggregate productivity?," Journal of Development Economics, Elsevier, vol. 88(2), pages 325-334, March.
    42. Douglas Gollin & David Lagakos & Michael E. Waugh, 2014. "The Agricultural Productivity Gap," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(2), pages 939-993.
    43. Caselli, Francesco, 2005. "Accounting for cross-country income differences," LSE Research Online Documents on Economics 3567, London School of Economics and Political Science, LSE Library.
    44. Melanie Morten, 2016. "Temporary Migration and Endogenous Risk Sharing in Village India," NBER Working Papers 22159, National Bureau of Economic Research, Inc.
    45. Kaivan Munshi & Mark Rosenzweig, 2006. "Traditional Institutions Meet the Modern World: Caste, Gender, and Schooling Choice in a Globalizing Economy," American Economic Review, American Economic Association, vol. 96(4), pages 1225-1252, September.
    46. Emily Breza & Arun G. Chandrasekhar, 2015. "Social Networks, Reputation and Commitment: Evidence from a Savings Monitors Experiment," NBER Working Papers 21169, National Bureau of Economic Research, Inc.
    47. Luke, Nancy & Munshi, Kaivan, 2011. "Women as agents of change: Female income and mobility in India," Journal of Development Economics, Elsevier, vol. 94(1), pages 1-17, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kaivan Munshi & Mark R. Rosenzweig, 2005. "Why is Mobility in India so Low? Social Insurance, Inequality, and Growth," CID Working Papers 121, Center for International Development at Harvard University.
    2. Kaivan Munshi, 2014. "Community Networks and the Process of Development," Journal of Economic Perspectives, American Economic Association, vol. 28(4), pages 49-76, Fall.
    3. De Magalhães, Leandro & Santaeulàlia-Llopis, Raül, 2018. "The consumption, income, and wealth of the poorest: An empirical analysis of economic inequality in rural and urban Sub-Saharan Africa for macroeconomists," Journal of Development Economics, Elsevier, vol. 134(C), pages 350-371.
    4. David Lagakos & Ahmed Mushfiq Mobarak & Michael E. Waugh, 2023. "The Welfare Effects of Encouraging Rural–Urban Migration," Econometrica, Econometric Society, vol. 91(3), pages 803-837, May.
    5. Anandi Mani & Emma Riley, 2019. "Social networks, role models, peer effects, and aspirations," WIDER Working Paper Series wp-2019-120, World Institute for Development Economic Research (UNU-WIDER).
    6. Douglas Gollin & Christopher Udry, 2021. "Heterogeneity, Measurement Error, and Misallocation: Evidence from African Agriculture," Journal of Political Economy, University of Chicago Press, vol. 129(1), pages 1-80.
    7. Joachim De Weerdt & Kalle Hirvonen, 2016. "Risk Sharing and Internal Migration," Economic Development and Cultural Change, University of Chicago Press, vol. 65(1), pages 63-86.
    8. Angelucci Manuela & De Giorgi Giacomo & Rangel Marcos & Rasul Imran, 2009. "Village Economies and the Structure of Extended Family Networks," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 9(1), pages 1-46, October.
    9. Parag Mahajan & Dean Yang, 2020. "Taken by Storm: Hurricanes, Migrant Networks, and US Immigration," American Economic Journal: Applied Economics, American Economic Association, vol. 12(2), pages 250-277, April.
    10. Gaurav, Sarthak, 2015. "Are Rainfed Agricultural Households Insured? Evidence from Five Villages in Vidarbha, India," World Development, Elsevier, vol. 66(C), pages 719-736.
    11. De Weerdt, Joachim & Dercon, Stefan, 2006. "Risk-sharing networks and insurance against illness," Journal of Development Economics, Elsevier, vol. 81(2), pages 337-356, December.
    12. Gharad Bryan & Shyamal Chowdhury & A. Mushfiq Mobarak, 2011. "Seasonal Migration and Risk Aversion," Working Papers id:4650, eSocialSciences.
    13. Apoorv Gupta & Jacopo Ponticelli & Andrea Tesei, 2020. "Language Barriers, Technology Adoption and Productivity: Evidence from Agriculture in India," NBER Working Papers 27192, National Bureau of Economic Research, Inc.
    14. Melanie Morten, 2016. "Temporary Migration and Endogenous Risk Sharing in Village India," NBER Working Papers 22159, National Bureau of Economic Research, Inc.
    15. Gottlieb, Charles & Grobovšek, Jan, 2019. "Communal land and agricultural productivity," Journal of Development Economics, Elsevier, vol. 138(C), pages 135-152.
    16. Joan Hamory & Marieke Kleemans & Nicholas Y Li & Edward Miguel, 2021. "Reevaluating Agricultural Productivity Gaps with Longitudinal Microdata," Journal of the European Economic Association, European Economic Association, vol. 19(3), pages 1522-1555.
    17. Alistair Dieppe, 2021. "Global Productivity," World Bank Publications - Books, The World Bank Group, number 34015, December.
    18. Diego Restuccia & Richard Rogerson, 2017. "The Causes and Costs of Misallocation," Journal of Economic Perspectives, American Economic Association, vol. 31(3), pages 151-174, Summer.
    19. Gollin, Douglas & Lagakos, David & Kirchberger, Martina, 2017. "In Search of a Spatial Equilibrium in the Developing World," CEPR Discussion Papers 12114, C.E.P.R. Discussion Papers.
    20. Fafchamps, Marcel & Gubert, Flore, 2007. "The formation of risk sharing networks," Journal of Development Economics, Elsevier, vol. 83(2), pages 326-350, July.

    More about this item

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cam:camdae:1562. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Jake Dyer (email available below). General contact details of provider: https://www.econ.cam.ac.uk/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.